Break up the banks, tax banks more than other firms, and lay siege to them with low-cost competition from public financial institutions such as the Reserve Bank of Australia and the Future Fund.
These are some of the ways to bring the banks to heel after the royal commission's disclosures of conflicts of interest, alleged criminal conduct and customer rip-offs to be discussed at the Melbourne Economic Forum on Tuesday. The Productivity Commission also found banking highly concentrated in favour of big banks.
Allan Fels, a former dean of the Australian School of Government and chairman of the Australian Competition and Consumer Commission, will tell the forum that the Australian Competition Law should be rewritten to include a general power of divestiture, administered by the courts, for extreme cases of abuse of market power.
Professor Fels will say this would be preferable to the ad hoc, opportunistic threats to break up banks and energy companies favoured by the Turnbull and Morrison governments and it would have the added benefit of strengthening the prohibition on abuses of market power.
Although such a provision has been rejected by inquiries dating back to the 1990s, Professor Fels will say that the depth and breadth of the misconduct uncovered by the royal commission means new solutions must be considered.
Tax 'economic rents'
"Shifting the relative incidence of taxation from competitive sectors of the economy to rent-heavy sectors would lead to higher investment and economic growth, without imprudently denuding the public revenues at a time when higher public debt could increase vulnerability in risky international and domestic economic environments."
Financial Review
Taxing banks more than other firms is a daft idea. Taxing a type of firm famous for misbehaviour – banks, used car dealers or whatever - will not get rid of the misbehaviour. The solution is to control the misbehaviour.
ReplyDeleteAlso, breaking up banks (unless a bank is so large that it’s exploiting monopoly powers) is a daft idea: we’d then lose the economies of scale that large firms bring.
“laying siege to them with low-cost competition from public financial institutions..” is another daft idea (mentioned in the first sentence of the Financial Review article). Having central banks offer accounts to all comers is an idea which advocates of full reserve banking have long proposed, and which is now being actively considered by several central banks. But there is no reason for those accounts to be subsidised: i.e. depositors should be charged with the full cost of running those accounts.
Taxing banks more than other firms is a daft idea Ralph Musgrave
ReplyDeleteBe that as it may be, banks are not individual citizens and thus cannot be said to have an inherent right to use the Nation's fiat for free.
Therefore banks and other non-individual citizen account holders at the Central Bank may properly be charged negative interest on their accounts.
But there is no reason for those accounts to be subsidised: i.e. depositors should be charged with the full cost of running those accounts. Ralph Musgrave
Otoh, it is easily argued that individual citizens have a fundamental human right to use their Nation's fiat for free, up to reasonable limits on account size and number of transactions per month.
Moreover, the right to use fiat for free has long been recognized wrt to physical fiat, aka "cash".
Also, breaking up banks (unless a bank is so large that it’s exploiting monopoly powers) is a daft idea: we’d then lose the economies of scale that large firms bring.
ReplyDeleteWhere do you see anti-trust to prevent extraction of monopoly and monopsony rents fitting in?
Also, breaking up banks (unless a bank is so large that it’s exploiting monopoly powers) is a daft idea: we’d then lose the economies of scale that large firms bring. Ralph Musgrave
ReplyDeleteThe more depositors a bank has, the less likely its liabilities for fiat shall be redeemed by competitors since more transactions shall occur within the bank between fellow depositors there (intra-bank). Thus the bank has less need to borrow fiat (aka "reserves") from another bank (inter-bank lending) or from the Central Bank itself.
However, the above advantage is not a legitimate advantage as are economies of scale but a consequence of:
1) Citizens may not have fiat accounts of their own at the Central Bank thus requiring them to use one bank, credit union, etc. or another or be limited to mere physical fiat, aka "cash".
2) Government privileges for the banks such as deposit insurance, lender of last resort, etc.
3) Banks not being charged (apart from transactions at least) for their fiat accounts at the Central Bank despite the fact that they are not individual citizens and thus have no inherent right to a free account of ANY size at the Central Bank - much, much less be paid interest (Interest on Reserves) on such inherently risk-free accounts.
So, if we wish to preserve the legitimate advantages of large banks while eliminating the illegitimate advantages of large banks such as TBTF (To Big To Fail), the proper means to do so is the responsible abolition of government privileges for the banks.
https://www.bloomberg.com/news/articles/2018-09-04/deutsche-bank-is-said-to-be-removed-from-euro-stoxx-50-index
ReplyDeleteNothing left to break up... what now????
Where are you guys going to get all the “money!” now????
Borrow from the grandchildren?
Borrow from China???
Increased "expenses" in any form (like taxes) will simply be passed on as "costs" to depositors.
ReplyDeleteNationalize the banks, ends the usury cartels.